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Lord Goodhart: I support the noble Lord's amendment. I found the reasons advanced earlier today by the Minister as to why child maintenance payments should be disregarded for the purposes of calculating the income of the receiving parent to be very persuasive. However, I find it more difficult to accept what she then indicated; that the payment of maintenance will be disregarded when looking at the income of the paying parent. It raises the difference between first and second families to an unacceptable level.

Let us envisage a situation in which a formerly married couple are divorced. The wife receives £2,000 per year by way of child maintenance and £10,000 per year by way of earned income. Let us say that the husband has remarried and has a second family. Again, he obviously has to pay that £2,000 per year. His earned income is also £10,000.

The position is that the first family will receive the WFTC as though its income were £10,000 whereas in reality, taking into account the child support payments, it will be £12,000. The second family will receive the WFTC on the basis that the family income is £10,000 whereas in reality, after taking into account the maintenance payments which must be made, its income will be only £8,000.

As I understand it, it is not intended that child support or maintenance payments should leave second families in poverty, but at first sight there seems to be an unacceptable degree of discrimination between second and first families. Perhaps the Minister will reconsider that issue.

Lord Swinfen: I support the amendment. Perhaps the noble Lord, Lord Goodhart, will allow me to suggest that the payment would not be reduced by just £2,000 but by more than that because that £2,000 would come out of taxed income, so the second family would be even worse off.

On the earlier amendments, when maintenance payments were mentioned, the Minister said that maintenance payments made under the directions of the court and the Child Support Agency would be taken into account. What is the position of the maintenance payment that is not made in either of those ways but is made under a voluntary agreement between the father and the mother of the child or children in question?

Baroness Hollis of Heigham: The proposed new clause seeks to provide for maintenance payments to be disregarded in calculating tax credit payable to a claimant who is either paying or receiving maintenance payments.

First, I deal with a situation in which someone is receiving maintenance payments. It is clear that there will be a 100 per cent. disregard of child maintenance.

I was then pressed whether the disregard would be affected by the way in which that maintenance were paid, whether by CSA, court order or voluntary

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agreement. I thought that I had answered that previously. There will be a 100 per cent. disregard whether the payment is made by the CSA, through court order or voluntary child maintenance arrangement. I believe that that is what the noble Lord, Lord Swinfen, asked me.

I find it difficult to accept the suggestion that maintenance payments being made by a claimant should be disregarded, as though there were some mirror opposite in that regard. It would mean that the Child Support Agency or the court, having decided that a certain amount of maintenance should be paid from the non-resident parent's income for the upkeep of the non-resident parent's children, the Government should then proceed to subsidise those payments. If this amendment were carried, it would mean that the Government were contributing 55 per cent. of the maintenance to be paid because the taper would kick in after the maintenance had been paid.

I cannot believe that that is the intention of the Committee because the parent with care is entitled to the full maintenance paid. If Members of the Committee are then saying that it should be disregarded from the father's income, it means that the Treasury--other parents, other fathers--have to make good that deficit. It means, therefore, that instead of him paying the £15 or £25 or whatever is appropriate on his income, the Treasury would be paying more than 55 per cent. of that sum. I cannot believe that that is what noble Lords intend. I believe that the problem noble Lords are having is that they are comparing the woman receiving family credit in the past and who will go on to receive tax credit in the future with the man--the non-resident parent--who is paying.

I suggest to noble Lords that that is not where the equation should lie. It should lie between the single man earning £200 per week who is not eligible for WFTC and who has one child in the first family but, because he is single, now does not have any more children, who, under the new proposals we hope to bring before Parliament soon, will be paying £30 out of that £200.

If he was married, however, or had moved on into a relationship in which the woman had two children, who might not be his biologically, his maintenance assessment under the new proposals would fall from £30 to about £25 in recognition of the responsibilities of a second family. However, what noble Lords would be saying is that in his case, having moved in with somebody, possibly not married, who has brought children into that relationship, possibly not his, the maintenance he should then pay to the first child should be more than halved in comparison with that of a single man. I do not believe that to be even faintly reasonable. The obligations of that second family would be reflected in the reduced maintenance he should pay, not reflected at a higher point at which the taper starts to kick in. Given that, I hope noble Lords will reject the amendment.

Lord Goodhart: Before the noble Lord, Lord Higgins, replies, perhaps I may say that obviously this problem only arises if the father then has a second

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family. Surely the purpose of family credit is to ensure that families with children get adequate support. What is happening here is that a second family will be penalised because the amount of the working families' tax credit will be calculated not on the real income that the father has left but on a kind of notional income which does not take account of the fact that he is absolutely committed to paying a substantial slice of that income, quite rightly, to the first family.

Baroness Hollis of Heigham: No, I emphasise that I am now dealing with the proposals we are about to bring to the House, not with the current CSA system. There, given the complications of protected income and so on, the equations are very different. It seems to me to be simpler to say what we expect to be the case because the timing will be very similar.

In the new proposals, second families will indeed be properly protected and treated in a balanced way with first families. We expect that protection to extend to stepchildren who are not biologically the children in the second family of the non-resident parent. So, within the second family, we are not talking about first-class children and second-class children.

In the recent consultation exercise, to which there were over 1,500 replies, it was clear that the percentage we are expecting a non-resident parent to pay to support a child or children in the first family was about right--that is 15 per cent for one child, 20 per cent. for two and 25 per cent. for three or more--but that that amount should be abated to the extent that there are children in the second family, whether his biologically or whether they have been brought into that relationship by his new partner, so that we do not have first-class and second-class children.

As a result of the consultation exercise, that was broadly regarded as a fair way to proceed. However, if noble Lords accepted the amendment, that would mean that a single person would pay £30. If someone starts a relationship and moves in with a woman--it may not be for very long--who has two children of her own, he would not only have it deducted down to £25 in recognition of that second family responsibility but that would be asking the Government to pick up 55 per cent. of the sum as well by having the tax credits kick in at a lower notional income. So, effectively, of the £25 to be paid, or more than £30 because of the responsibility of a second family, he would pay something like £11.50 and the Government would contribute £13.50. However, if the woman you were paying it to was on income support, and therefore the issue of family credit did not arise and she was even poorer, you would be expected to pay the entire sum, even though it would be netted back by the Treasury off the benefit, all but £10.

Whichever way we work, whether we compare the situation with a lone parent on income support, in which case the full sum would be paid because there would be no question of her maintenance being disregarded, only the first £10; or we compare his position with that of a

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single man or with that of other fathers in work supporting their children, on all three grounds this amendment is unfair. I suggest the Committee rejects it.

Lord Higgins: I find myself trying to relate what the noble Baroness said to my former constituents' specific cases; it makes it a little more concrete. But the noble Baroness has been doing an immense amount of work on the Child Support Agency side and I shall need to consider carefully what she said.

In that context, since she related some of her remarks to what the Government propose, can she give us any indication of timing with regard to those proposals being announced and the passage of this Bill through the House?

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